UPDATED – COVID-19 Loans for Small Businesses, Not-For-Profits, Independent Contractors by Judd Appel, ABV

Posted on April 05, 2020

Small businesses and non-profits organizations suffering significant losses and risk of permanent closure in the wake of the COVID-19 pandemic may qualify for financial assistance from the Small Business Administration (SBA)’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loan program (EIDL). The PPP, which offers potential loan forgiveness, was created under the government’s $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Before applying for relief, small business owners, non-profits and other qualifying entities should meet with their CPA’s and business advisors to determine which program will ultimately provide them with the most benefit for their unique needs and circumstances.

Paycheck Protection Program (PPP)

Small businesses with less than 500 employees, including sole proprietorships, independent contractors and the self-employed, may qualify to receive government-backed loans of up to $10 million when 1) they retain workers through the crisis period, and 2) they continue paying employee wages and other payroll expenses. Borrowers may qualify to receive complete loan forgiveness when they use loan proceeds to maintain payroll and pay expenses for rent, utilities and mortgage interest.


PPP loans are available to small businesses and other entities that have been in operation since Feb. 15, 2020, and have less than 500 employees whose principal residences are in the U.S.

Eligible small business entities include:

In addition to employee-count, the SBA may rely on the average number of employees or annual revenue standards set by the North American Industry Classification System (NAICS) for a particular industry.

Businesses with more than one physical location, including hotels, restaurants and franchisors, can also qualify when less than 500 employees work at each of their separate locations. For purposes of determining this threshold, businesses should count all employees, including full-time, part-time and temp workers as well as independent contractors.

According to the PPP application, businesses and owners will not be eligible for loans when they are currently in bankruptcy, they are delinquent on another federal loan or they defaulted on a federal loan in the past seven years.

Loan Amounts

The maximum loan amount available is up to two months of an employer’s average monthly payroll costs from last year plus an additional 25 percent of that amount, up to a maximum of $10 million.

For purposes of calculating average payroll costs, PPP applicants may include the following expenses:

It is important to note that payments to independent contractors are specifically excluded from payroll expenses as well as compensation paid to employees whose principle place of residence is outside the U.S.

The actual size of the loan an employer may receive will depend on several factors, including its business structure and the time it has been in operations.

Loan Forgiveness

Borrowers who retain workers through the crisis period may receive 100 percent loan forgiveness when they spend at least 75 percent of loan funds for payroll costs, with the additional 25 percent used to pay mortgage interest, rent and utilities for the eight weeks after receiving loan proceeds.

The amount of loan forgiveness will be reduced when employers reduce staff or when they reduce salaries and wages by more than 25 percent.  The SBA will give employers until June 30, 2020, to rehire laid-off staff and restore salary levels.

Loan Terms

Unforgiven loan amounts will be subject to a maximum interest rate of 1.0 percent over a 2-year period. Borrowers may defer payments for six months, but interest will accrue during this period.

How to Apply

The SBA and its approved lenders began accepting PPP loan applications on April 3 and will continue to do so until June 30, 2020. Entities seeking economic relief through the PPP should recognize that loans are available on a first-come-first-serve basis, and the information required for loan applications may vary from one lender to the next. In addition, businesses should be aware that this is a fluid situation for which loan terms and rules for forgiveness are subject to change based on future guidance from the IRS and Treasury.

Economic Injury Disaster Loan (EIDL) and Emergency Economic Injury Grants

Small businesses that have suffered more extensive losses may find relief in the SBA’s Economic Injury Disaster Loan (EIDL) program, which is offering qualifying entities up to 30-year, low-interest loans of up to $2 million, as well as grants of up to $10,000, which recipients will not be required to repay.


To be eligible to receive an EIDL, taxpayers, including sole proprietorships, independent contractors, employee-owned businesses, tribal businesses and private nonprofits, must have 500 or fewer employees. Like PPP loans, taxpayers should recognize that the SBA may use the 500-employee threshold. Some of the entities that do NOT qualify for EIDLs are religious organizations and companies in the business of lending or gambling. The SBA website has a published list of all businesses that are ineligible for this program.

EIDL borrowers must be independently owned and operated with not more than 49 percent foreign ownership. They must also be located in a president declared disaster area and demonstrate that they suffered working capital losses due to the coronavirus pandemic.

Eligibility for an Emergency Economic Injury Grant requires borrowers to have been in operations since Jan. 31, 2020.

Finally, borrowers may apply for and receive economic relief under both the PPP and the EIDL and Emergency Economic Injury Grant programs.

Collateral Requirements

Loans above $25,000 under the EIDL program require collateral, including real estate, and potential personal guarantees.

Loan Amounts

While qualifying borrowers may receive up to loans of up to $2 million, the actual amount they receive may be extended by the SBA and local governments, depending on the taxpayers’ actual economic damages arising from the COVID-19 pandemic.

Loan Terms

The interest rate for EIDL loans made to small businesses without credit available elsewhere is 3.75 percent; businesses with credit available to them from other sources are not eligible. The interest rate for loans made to non-profits is 2.75 percent. While the SBA determines loan terms on a case-by-case basis, depending on each borrower’s unique circumstances, most loans offer long-term repayment plans of up to 30 years, which make repayments more affordable for borrowers.

Loan recipients are restricted in how they use EIDL loans. Allocated funds may be used only as working capital to cover fixed debts, payroll, accounts payable, employee sick leave and other costs required to maintain liquidity and continue operations. In contrast, borrowers may NOT use these loans to pay dividends and bonuses, to refinance long-term debt, pay off outstanding tax liabilities or to pay for the expansion or replacement of their facilities and tangible assets.

How to Apply

Taxpayers may apply for Economic Injury Disaster Loans and/or Emergency Economic Injury Grants directly through the SBA. However, eligible borrowers should speak with their CPAs and other advisors to determine the best strategies for improving liquidity and cash flow during this very challenging time.

About the Author: Judd Appel, ABV, is a director with BayBridge Capital Advisors (BCA), an affiliate of Berkowitz Pollack Brant Advisors + CPAs, which helps businesses raise capital, explore strategic partnerships and improve financial performance. He can be reached at the firm’s Miami office at 305-960-8858 or